Impossible mortgages - Time to help those caught in loan trap

IT is good that the debate about families being crushed by unsustainable mortgages is gathering a new urgency.

It seems to be moving towards a point where possibility, humanity and social obligation take precedence over the bleatings of bankers, developers and politicians who conspired to corral young families who had no option but to sign on the dotted line to put an impossibly expensive roof over their heads.

Once again it fell to UCD professor of economics Morgan Kelly to cut to the chase, and last week he suggested that a figure between €5 billion and €6bn would go a long way towards funding a debt forgiveness scheme for the tens of thousands of people who can’t meet mortgage repayments on their home.

Though he stopped short of endorsing Prof Kelly’s proposals, it is encouraging that Housing Minister Willie Penrose agreed, at the weekend, that the suggestion deserved consideration. This is such a serious, community-destroying issue that yesterday’s official statement pouring cold water on it seems blinkered and no more than deferring some sort of inevitable intervention.

Any consideration of the idea should be immediate and finite. After all, the sum involved is tiny compared to that buried trying to revitalise the banks. The general idea recognises the reality of the situation and has the capacity to restore the peace of mind to tens of thousands of families terrified by the prospect of losing the family home and all they have invested in it.

That fear is compounded by the fact that in Ireland, unlike many other countries, a person who defaults on a mortgage remains liable for that debt even if they leave the home they can no longer afford. This is Dickensian and the rules should be changed to recognise that things do go wrong in people’s lives and that the lenders are involved in a business arrangement not a guaranteed win-win situation.

Of course such a scheme would have huge potential for abuse and it would not win public approval unless its administration was hard-nosed and accompanied by a set of penalties stiff enough to dissuade fraud.

It should be confined to those who can’t pay and exclude those who won’t pay. It should treat residential and investment loans differently, leaving the banks to sort out the problems they did so much to create by encouraging — through mis-selling in some cases — so many gullible people to borrow and invest unwisely.

This fraying situation, one that gets worse as more people lose their jobs, arises because of Government failure so it is reasonable to expect a Government response to try to resolve it. Without such a response these mortgages will never be repaid and thousands of Irish people will spend decades paying a very heavy and disproportionate price just because they wanted to put a roof over their heads. The lenders must pay a price too by settling loans for far less than was originally involved.

These impossible mortgages are a symptom of a financial crisis but the consequences for those caught in their grip are social. These ordinary people are not the architects of their own downfall but rather the victims of crisis created by a system that abandoned the principles that would have prevented it. They should be helped because by giving them a new beginning all of society will eventually benefit.